PSB (PSBX) 10-Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2009
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-50970
PSB Holdings, Inc.
(Exact name of registrant as specified in its charter)

United States	42-1597948
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
40 Main Street, Putnam, Connecticut 06260
(Address of principal executive offices)
(Zip Code)
(860) 928-6501
(Issuer’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES  o NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o YES  o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES  x NO

          As of April 30, 2009, there were 6,530,509 shares of the registrant’s common stock outstanding.

PSB Holdings, Inc.

Table of Contents

		Page No.
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2009 (Unaudited) and June 30, 2008 (Audited)	1
	Condensed Consolidated Statements of Income (Loss) for the Three Months Ended and Nine Months Ended March 31, 2009 and 2008 (Unaudited)	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended March 31, 2009 and 2008 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2009 and 2008 (Unaudited)	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Item 4T.	Controls and Procedures	32
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURES		34

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

PSB Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31, 2009			June 30, 2008
	(Unaudited)			(Audited)
	(in thousands, except share data)
ASSETS
Cash and due from depository institutions	$	4,490		$	7,026
Federal funds sold		4,070			1,120
Investment securities available-for-sale, at fair value and FHLB stock		176,709			220,026
Loans held-for-sale		270			675
Loans receivable, net of allowance for loan losses of $2,020 as of March 31, 2009 and $1,758 as of June 30, 2008		259,282			242,728
Other real estate owned		1,289			—
Premises and equipment, net		4,470			3,706
Intangible assets		7,614			7,769
Other assets		18,898			11,449
TOTAL ASSETS	$	477,092		$	494,499
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	301,558		$	283,724
Borrowed funds		133,908			156,621
Mortgagors’ escrow accounts		860			1,423
Other liabilities		4,962			3,294
Total Liabilities		441,288			445,062
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $.10 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.10 par value, 12,000,000 shares authorized, 6,943,125 shares issued, 6,530,509 shares outstanding at March 31, 2009 and at June 30, 2008		694			694
Additional paid-in capital		30,771			30,795
Unearned ESOP shares		(2,089	)		(2,089	)
Unearned stock awards		(429	)		(605	)
Retained earnings		26,194			28,663
Treasury stock, at cost (412,616 shares at March 31, 2009 and at June 30, 2008)		(4,205	)		(4,205	)
Accumulated other comprehensive loss		(15,132	)		(3,816	)
Total stockholders’ equity		35,804			49,437
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	477,092		$	494,499

See notes to condensed consolidated financial statements.

1

PSB Holdings, Inc.

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

	Three Months Ended March 31,					Nine Months Ended March 31,
	2009			2008		2009			2008
	(in thousands, except share data)
Interest and dividend income:
Interest on loans	$	3,588		$	3,743	$	11,039		$	11,460
Interest and dividends on investments		2,603			3,028		8,199			8,992
Total interest and dividend income		6,191			6,771		19,238			20,452
Interest expense:
Deposits and escrow		1,703			2,139		5,209			6,497
Borrowed funds		1,383			1,653		4,446			5,315
Total interest expense		3,086			3,792		9,655			11,812
Net interest and dividend income		3,105			2,979		9,583			8,640
Provision for loan losses		157			—		754			47
Net interest and dividend income after provision for loan losses		2,948			2,979		8,829			8,593
Noninterest income (charge):
Fees for services		543			561		1,767			1,760
Mortgage banking activities		38			25		84			86
Net commissions from brokerage service		33			22		111			90
Loss on writedowns of securities		(75	)		—		(5,859	)		—
Gain on sale of securities		86			190		86			170
Other income		102			105		475			311
Total noninterest income (charge)		727			903		(3,336	)		2,417
Noninterest expense:
Compensation and benefits		1,466			1,508		4,428			4,508
Occupancy and equipment		319			314		862			895
Data processing		162			180		522			645
Advertising and marketing		101			103		313			335
Other noninterest expense		589			559		1,695			1,814
Total noninterest expense		2,637			2,664		7,820			8,197
Income (loss) before income tax expense (benefit)		1,038			1,218		(2,327	)		2,813
Income tax expense (benefit)		326			297		(998	)		669
NET INCOME (LOSS)	$	712		$	921	$	(1,329	)	$	2,144
Earnings (loss) per common share
Basic	$	0.11		$	0.15	$	(0.21	)	$	0.34
Diluted	$	0.11		$	0.15	$	(0.21	)	$	0.34

See notes to condensed consolidated financial statements.

2

PSB Holdings, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended March 31, 2009 and 2008

(Unaudited)

	Common Stock		Additional Paid-in Capital			Unearned ESOP			Unearned Stock Awards			Reatained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	(in thousands)
Balances at June 30, 2007	$	694	$	30,465		$	(2,222	)	$	(978	)	$	26,441		$	(1,767	)	$	(1,382	)	$	51,251
Dividends declared		—		—			—			—			(585	)		—			—			(585	)
Treasury stock acquired		—		—			—			—						(2,415	)		—			(2,415	)
Stock based compensation		—		—			—			21						(21	)		—			—
Incentive plan shares earned		—		—			—			271			—			—			—			271
Comprehensive income:
Net income		—		—			—			—			2,144						—			—
Net change in unrealized holding losses on available-for-sale securities, net of tax effect		—		—			—			—			—			—			(616	)
Comprehensive income																						1,528
Balances at March 31, 2008	$	694	$	30,465		$	(2,222	)	$	(686	)	$	28,000		$	(4,203	)	$	(1,998	)	$	50,050
Balances at June 30, 2008	$	694	$	30,795		$	(2,089	)	$	(605	)	$	28,663		$	(4,205	)	$	(3,816	)	$	49,437
Dividends declared		—		—			—			—			(1,140	)		—			—			(1,140	)
Stock based compensation		—		(24	)		—			176			—			—			—			152
Comprehensive loss:
Net loss		—		—			—			—			(1,329	)		—			—			—
Net change in unrealized holding losses on available-for-sale securities, net of tax effect		—		—			—			—			—			—			(11,316	)
Comprehensive loss																						(12,645	)
Balances at March 31, 2009	$	694	$	30,771		$	(2,089	)	$	(429	)	$	26,194		$	(4,205	)	$	(15,132	)	$	35,804

See notes to condensed consolidated financial statements.

3

PSB Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended March 31,
	2009			2008
	(in thousands)
Cash flows from operating activities
Net (Loss) income	$	(1,329	)	$	2,144
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Provision for loan losses		754			47
Stock-based compensation		124			298
Amortization of core deposit intangible		155			176
Depreciation		292			408
Net amortization (accretion) of available-for-sale securities		63			(79	)
Net decrease in loans held for sale		405			1,344
Writedowns of securities		5,859			—
Net gain on sale of securities		(86	)		(170	)
Amortization of premium on purchased loans		—			16
Increase in cash surrender value of bank owned life insurance		(196	)		(194	)
Bank owned life insurance death benefit income		(162	)		—
Net change in:
Deferred loan costs		(24	)		(67	)
Other assets		(1,613	)		592
Other liabilities		1,649			283
Net cash provided by operating activities		5,891			4,798
Cash flows from investing activities
Proceeds from sales of available-for-sale securities		4,629			30,043
Proceeds from maturities of available-for-sale securities		22,815			33,094
Purchase of available-for-sale securities and Federal Home Loan Bank stock		(7,103	)		(55,182	)
Loan originations net of principal payments		(18,573	)		(8,810	)
Proceeds from the surrender of bank owned life insurance policy		345			—
Purchase of premises and equipment		(1,056	)		(187	)
Net cash provided (used) by investing activities		1,057			(1,042	)
Cash flows from financing activities
Net increase (decrease) in savings, demand deposits and NOW accounts		7,127			(9,587	)
Net increase (decrease) in time deposit accounts		10,707			(1,335	)
Proceeds from long term borrowings		24,000			67,500
Repayments of long term borrowings		(30,715	)		(52,636	)
Net change in short term borrowings		(15,998	)		(8,755	)
Net decrease in mortgagors’ escrow account		(563	)		(433	)
Acquisition of treasury shares		—			(2,226	)
Dividends paid		(1,092	)		(542	)
Net cash used by financing activities		(6,534	)		(8,014	)
Increase (decrease) in cash and cash equivalents		414			(4,258	)
Cash and cash equivalents at beginning of year		8,146			13,198
Cash and cash equivalents at end of period	$	8,560		$	8,940
Supplemental disclosures
Cash paid during the period for:
Interest	$	9,671		$	11,884
Income taxes	$	217		$	187
Loans transferred to other real estate owned	$	1,289		$	—

See notes to condensed consolidated financial statements.

4

PSB Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – Organization

PSB Holdings, Inc. (Company) is a federally chartered holding company formed on May 27, 2003 for the purpose of acquiring all of the common stock of Putnam Bank (formerly known as Putnam Savings Bank until its name change effective November 2, 2007) (Bank) concurrent with the Bank’s reorganization from a mutual savings institution to the mutual holding company form of organization. No shares were offered to the public as part of this reorganization.

On October 4, 2004, the Company issued 6,943,125 shares of common stock, 3,729,846 shares (53.7%) of which were issued to Putnam Bancorp, MHC and 3,089,691 shares (44.5%) of which were sold to eligible depositors of the Bank and others at $10.00 per share. In addition, the Company issued 123,588 shares (1.8%) to a charitable foundation established by the Bank.

NOTE 2 – Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and the instructions to Form 10-Q, and accordingly do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary, consisting of only normal recurring accruals and the elimination of all significant intercompany accounts, to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. In preparing the interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowance may be necessary based on changes in economic conditions, particularly in Connecticut. Actual results could differ significantly from those estimates. The interim results of operations are not necessarily indicative of the operating results to be expected for future periods, including the year ending June 30, 2009. These financial statements should be read in conjunction with the 2008 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission (SEC) on September 23, 2008.

NOTE 3 – Recent Accounting Pronouncements

The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation 48, “Accounting for Uncertainty in Income Taxes,” on October 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards (SFAS) 5, Accounting for Contingencies. As required by Interpretation 48, which clarifies Statement 109, Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

The Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. The adoption of Interpretation 48 did not have a material impact on the results of operation or financial condition of the Company.

5

In September 2006, the (FASB) issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value and expand disclosures about fair values. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company’s adoption of SFAS No. 157 did not have a material impact on the Company’s financial position or results of operations. See Note 11 for further information.

In September 2006, the Emerging Issues Task Force issued EITF Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” “EITF Issue 06-4”. EITF Issue 06-4 requires that for endorsement split-dollar insurance arrangements that provide a benefit to an employee that extends to postretirement periods, an employer should recognize a liability for future benefits in accordance with SFAS No. 106 or APB No. 12 based on the substantive agreement with the employee. If the employer has effectively agreed to maintain a life insurance policy during postretirement periods, the costs of the life insurance policy during the postretirement periods should be accrued in accordance with either FASB Statement No. 106 or APB No. 12. If the employer has agreed to provide a death benefit, the employer should recognize a liability for the future death benefit in accordance with either SFAS No. 106 or APB No. 12. EITF Issue 06-4 is effective for fiscal years beginning after December 15, 2007. The Company’s adoption of EITF Issue 06-4 did not have a material impact on the Company’s financial position or results of operations.

During the first quarter of 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159), which permits entities to choose and measure many financial instruments and certain other items at fair value. The Company adopted SFAS No. 159 as of July 1, 2008. The Company did not elect fair value treatment for any financial assets or liabilities upon adoption. See Note 11 for further information.

In December 2007, the FASB issued SFAS No. 141 (Revised 2008), “Business Combinations” (SFAS 141(R)). SFAS 141(R) will significantly change the accounting for business combinations. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. It also amends the accounting treatment for certain specific items including acquisition costs and non controlling minority interests and includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after July 1, 2009. The Company does not expect the adoption of this statement to have a material impact on its financial condition and results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements and Amendment of ARB No. 51 (SFAS No. 160). The new pronouncement requires all entities to report noncontrolling (minority) interests in subsidiaries as a component of stockholders’ equity. SFAS No. 160 will be effective for fiscal years beginning after December 15, 2008. Early adoption is prohibited. Management does not anticipate that this statement will have a material impact on the Company’s financial condition and results of operations.

In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” This FSP provides guidance on how the transferor and transferee should separately account for a transfer of a financial asset and a related repurchase financing if certain criteria are met. This guidance will be effective January 1, 2009. The adoption of this new FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not expect the adoption of this statement to have a material impact on its financial condition and results of operations.

6

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP provides guidance as to factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets.” This guidance will be effective January 1, 2009. The adoption is not expected to have a material effect on the Company’s results of operations or financial position.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This standard formalizes minor changes in prioritizing accounting principles used in the preparation of financial statements that are presented in conformity with GAAP. This standard became effective November 18, 2008.

In April 2009, the FASB issued FASB Staff Position 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value measurements in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the impact of the adoption of this FSP on its financial condition and results of operations.

In April 2009, the FASB issued FASB Staff Position 107-1 and Accounting Principles Board Opinion 28-1, “Interim Disclosures About Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 amends FASB Statement No. 107, “Disclosures About Fair Value of Financial Instruments,” to require entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments in both interim and annual financial statements. APB 28-1 amends APB Opinion No. 28, “Interim Financial Reporting” to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4. The Company is currently evaluating the impact of the adoption of this FSP on its financial condition and results of operations.

In April 2009, the FASB issued FASB Staff Position 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment (OTTI) guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to OTTI of equity securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the impact of the adoption of this FSP on its financial condition and results of operations.

7

NOTE 4 – Earnings (Loss) Per Share (EPS)

As presented, basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For purposes of computing diluted EPS, the treasury stock method is used.

The following information was used in the computation of EPS on both a basic and diluted basis for the three months ended and nine months ended March 31, 2009 and March 31, 2008:

	Three Months Ended March 31, 2009		Three Months Ended March 31, 2008
Basic EPS computation:
Net income	$	712,000	$	921,000
Weighted average shares outstanding		6,286,951		6,262,348
Basic EPS	$	0.11	$	0.15
Diluted EPS computation:
Net income	$	712,000	$	921,000
Weighted average shares outstanding		6,286,951		6,262,348
Dilutive potential shares		40,401		64,585
		6,327,352		6,326,933
Diluted EPS	$	0.11	$	0.15

	Nine Months Ended March 31, 2009			Nine Months Ended March 31, 2008
Basic EPS computation:
Net (loss) income	$	(1,329,000	)	$	2,144,000
Weighted average shares outstanding		6,275,800			6,310,899
Basic EPS	$	(0.21	)	$	0.34
Diluted EPS computation:
Net (loss) income	$	(1,329,000	)	$	2,144,000
Weighted average shares outstanding		6,275,800			6,310,899
Dilutive potential shares		0			77,451
		6,275,800			6,388,350
Diluted EPS	$	(0.21	)	$	0.34

8

NOTE 5 – Investment Securities

The carrying value and estimated market values of investment securities are as follows:

			March 31, 2009
	Amortized Cost Basis		Gross Unrealized					Fair Value
			Gains		(Losses)
	(in thousands)
Debt securities:
U.S. government and agency obligations:
From one through five years	$	2,767	$	82	$	—		$	2,849
From five through ten years		3,249		78		—			3,327
After ten years		16,498		247		(4	)		16,741
		22,514		407		(4	)		22,917
Corporate bonds and other obligations:
Due within one year		2,999		17		(7	)		3,009
From one through five years		4,054		10		(714	)		3,350
After ten years		6,995		—		(3,247	)		3,748
		14,048		27		(3,968	)		10,107
Mortgage-backed securities		139,968		3,255		(16,458	)		126,765
Total debt securities		176,530		3,689		(20,430	)		159,789
Equity securities:
Preferred stock		15,046		21		(6,204	)		8,863
FHLB restricted stock		8,057		—		—			8,057
Total equity securities		23,103		21		(6,204	)		16,920
Total available-for-sale securities and FHLB Stock	$	199,633	$	3,710	$	(26,634	)	$	176,709

9

NOTE 5 – Investment Securities – (Continued)

	June 30, 2008
	Amortized Cost Basis		Gross Unrealized					Fair Value
			Gains		(Losses)
	(in thousands)
Debt securities:
U.S. government and agency obligations:
From one through five years	$	3,079	$	16	$	—		$	3,095
From five through ten years		2,232		17		(21	)		2,228
After ten years		13,987		174		(12	)		14,149
		19,298		207		(33	)		19,472
State agency and municipal obligations:
After ten years		4,448		99		—			4,547
		4,448		99		—			4,547
Corporate bonds and other obligations:
Due within one year		2,971		7		(1	)		2,977
From one through five years		8,045		10		(476	)		7,579
After ten years		8,042		47		(1,431	)		6,658
		19,058		64		(1,908	)		17,214
Mortgage-backed securities		156,063		556		(4,769	)		151,850
Total debt securities		198,867		926		(6,710	)		193,083
Equity securities:
Preferred stock		19,000		—		—			19,000
FHLB restricted stock		7,943		—		—			7,943
Total equity securities		26,943		—		—			26,943
Total available-for-sale securities and FHLB Stock	$	225,810	$	926	$	(6,710	)	$	220,026

Gross losses of $58,976 and $84,934 were realized on sales of available-for-sale securities for the nine months ended March 31, 2009 and March 31, 2008, respectively. Gross gains of $145,242 and $254,951 were realized on sales of available-for-sale securities for the nine months ended March 31, 2009 and March 31, 2008, respectively. There was an other-than-temporary impairment charge on available-for-sale securities of $75,000 during the quarter ended March 31, 2009 and $5.9 million during the nine months ended March 31, 2009. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview.

10

NOTE 6 – Loans

The following table sets forth the composition of our loan portfolio at March 31, 2009 and June 30, 2008:

	March 31, 2009						June 30, 2008
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Mortgage Loans:
Residential (1)	$	198,804			75.03	%	$	181,978			72.59	%
Commercial real estate		52,891			19.96			55,406			22.10
Residential construction		2,816			1.06			3,223			1.29
Commercial		9,311			3.51			8,687			3.46
Consumer and other		1,160			0.44			1,394			0.56
Total loans		264,982			100.00	%		250,688			100.00	%
Unadvanced construction loans		(4,024	)					(6,522	)
		260,958						244,166
Net deferred loan costs		344						320
Allowance for loan losses		(2,020	)					(1,758	)
Loans, net	$	259,282					$	242,728

(1) Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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NOTE 7 – Non-performing Assets

The table below sets forth the amounts and categories of non-performing assets at the dates indicated.

	At March 31, 2009			At June 30, 2008
	(Dollars in thousands)
Non-accrual loans:
Residential mortgage loans (1)	$	1,077		$	—
Commercial real estate		2,879			982
Residential construction		—			—
Commercial		100			—
Consumer and other		—			—
Total non-accrual loans		4,056			982
Accruing loans past due 90 days or more:
Residential mortgage loans (1)		—			—
Commercial real estate		496			2,859
Residential construction		—			—
Commercial		—			195
Consumer and other		—			—
Total		496			3,054
Total non-performing loans		4,552			4,036
Real estate owned		1,289			—
Other non-performing assets		46			—
Total non-performing assets	$	5,887		$	4,036
Total non-performing loans to total loans		1.74	%		1.65	%
Total non-performing assets to total assets		1.23			0.82

(1) Residential mortgage loans include one- to four-family mortgage loans, home equity loans, and home equity lines of credit.

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NOTE 8 – Allowance for Loan Losses

The following summarizes the changes in the allowance for loan losses for the quarter and nine months ended March 31, 2009, as compared to the prior year periods:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2008			2009			2008
	(in thousands)						(in thousands)
Balance, beginning of period	$	1,888		$	1,776		$	1,758		$	1,780
Provision for loan losses		157			—			754			47
Charge offs		(42	)		(27	)		(529	)		(102	)
Recoveries		17			16			37			40
Balance, end of period	$	2,020		$	1,765		$	2,020		$	1,765

At March 31, 2009, the Company had loans with balances of $4.0 million (representing 16 loans) on nonaccrual status and $496,000 (representing one loan) past due over 90 days and still accruing. At March 31, 2008, the Company had loans with balances of $1.4 million (representing eight loans) on nonaccrual status and $1.6 million (representing 13 loans) past due over 90 days and still accruing. The Company had nine loan relationships that are considered impaired with a balance of $3.2 million as of March 31, 2009 and there were no impaired loan relationships as of March 31, 2008.

NOTE 9 – Goodwill and Other Intangibles

Intangible assets include goodwill and a core deposit intangible associated with the Bank’s purchase of three branches from another financial institution in October 2005. The goodwill and core deposit intangible are evaluated for impairment on an annual basis and the core deposit intangible is amortized on an accelerated basis over a ten-year period. The carrying amount of goodwill and core deposit intangible as of March 31, 2009 was $6.9 million and $702,000, respectively. The amortization expense related to the core deposit intangible for the three months ended March 31, 2009 and 2008 was $51,000 and $59,000, respectively. The amortization expense related to the core deposit intangible for the nine months ended March 31, 2009 and 2008 was $155,000 and $176,000 respectively.

	March 31, 2009		June 30, 2008
	(in thousands)
Balances not subject to amortization:
Goodwill	$	6,912	$	6,912
Balances subject to amortization:
Core Deposit Intangible		702		857
Total intangible assets	$	7,614	$	7,769

13

The following table shows the estimated future amortization expense for amortizing intangible assets for the periods indicated:

	(in thousands)
For the three months ending June 30, 2009	$	51
For the twelve months ending June 30, 2010		178
For the twelve months ending June 30, 2011		149
For the twelve months ending June 30, 2012		121
Thereafter		203
Total	$	702

NOTE 10 – Comprehensive (Loss) Income

SFAS No. 130, “Reporting Comprehensive Income” establishes standards for disclosure of comprehensive income, which includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gains (losses) on securities). The Company’s one source of other comprehensive income is the net unrealized gain (loss) on securities.

	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2008			2009			2008
	(in thousands)						(in thousands)
Net Income (Loss)	$	712		$	921		$	(1,329	)	$	2,144
Other comprehensive (loss) income:
Net unrealized holding (losses) gains on available-for-sale securities		(1,433	)		(950	)		(22,913	)		(594	)
Reclassification adjustment for (gain) loss recognized in net inome		(11	)		(190	)		5,773			(170	)
Other comprehensive loss before tax benefit		(1,444	)		(1,140	)		(17,140	)		(764	)
Income tax benefit related to items of other comprehensive loss		490			386			5,824			148
Other comprehensive loss, net of tax		(954	)		(754	)		(11,316	)		(616	)
Total comprehensive (loss) income	$	(242	)	$	167		$	(12,645	)	$	1,528

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NOTE 11 – FAIR VALUE MEASUREMENTS

Effective July 1, 2008, the Company adopted SFAS 157, Fair Value Measurements, which provides a framework for measuring fair value under generally accepted accounting principles.

The Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company did not elect fair value treatment for any financial assets or liabilities upon adoption.

In accordance with SFAS 157, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for March 31, 2009.

The Company’s cash instruments are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The Company’s investment and mortgage-backed securities and other debt securities available for sale are generally classified within level 2 of the fair value hierarchy. For these securities, we obtain fair value measurements from independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using level 2 inputs based upon appraisals of similar properties obtained from a third party.

15

The following summarizes assets measured at fair value for the period ending March 31, 2009 (in thousands):

ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS

	Fair Value Measurements at Reporting Date Using:
	March 31, 2009		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Securities available for sale	$	168,652	$	—	$	135,677	$	32,975
Impaired Loans		3,004		—		3,004		—
Total	$	171,656	$	—	$	138,681	$	32,975

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for-sale Securities		Total
Beginning balance, July 1, 2008	$	15,000	$	15,000
Total gains or losses (realized/unrealized)
Included in earnings (or changes in net assets)		—		—
Included in other comprehensive income
Amortization of securities, net Transfers in and/or out of Level 3		17,975		17,975
Ending balance, March 31, 2009	$	32,975	$	32,975
The amount of total gains or losses for the period included in earnings (or changes in net assets)
attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—	$	—

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NOTE 12 – Stock-Based Incentive Plan

At the annual meeting of stockholders on October 21, 2005, stockholders of the Company approved the PSB Holdings, Inc. 2005 Stock-Based Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, the Company may grant up to 340,213 stock options and 136,085 shares of restricted stock to its employees, officers and directors for an aggregate amount of up to 476,298 shares of the Company’s common stock for issuance upon the grant or exercise of awards. Both incentive stock options and non-statutory stock options may be granted under the Incentive Plan.

On November 7, 2005, the Company awarded 319,800 options to purchase the Company’s common stock and 129,281 shares of restricted stock. Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date of grant ($10.60) with a maximum term of ten years.

On June 7, 2006, the Company awarded 18,000 options to purchase the Company’s common stock and 6,000 shares of restricted stock. Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date of grant ($10.78) with a maximum term of ten years.

On May 25, 2007, the Company awarded 29,000 options to purchase the Company’s common stock and 9,500 shares of restricted stock. Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date of grant ($10.70) with a maximum term of ten years.

Both stock option and restricted stock awards granted to date vest at 20% per year beginning on the first anniversary of the date of the grant.

Stock options and restricted stock awards are considered common stock equivalents for the purpose of computing earnings per share on a diluted basis.

In accordance with SFAS No.123 (R), “Accounting for Stock Options and Other Stock Based Compensation”, the Company has recorded share-based compensation expense related to outstanding stock option and restricted stock awards based upon the fair value at the date of grant over the vesting period of such awards on a straight-line basis. The fair value of each restricted stock allocation, based on the market price at the date of grant, is recorded to unearned stock awards. Compensation expense related to unearned restricted shares is amortized to compensation and benefits expense over the vesting period of the restricted stock awards. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing method which includes several assumptions such as volatility, expected dividends, expected term and risk-free rate for each stock option award. The Company recorded share-based compensation expense in connection with the stock option and restricted stock awards for the three months ended March 31, 2009 and March 31, 2008 of $74,000 and $82,000, respectively. The Company recorded share-based compensation expense in connection with the stock option and restricted stock awards for the nine months ended March 31, 2009 and March 31, 2008 of $124,000 and $298,000, respectively. During the nine months ended March 31, 2009, a reduction of $99,000 was recorded in stock award expense due to forfeitures.

The weighted-average fair value of stock options granted on November 7, 2005, June 7, 2006 and May 25, 2007 using the Black-Scholes option pricing method was $2.00 per share, $1.97 per share and $1.84 per share, respectively. Assumptions used to determine the weighted-average fair value of stock options granted were as follows:

	November 7, 2005 Grant			June 7, 2006 Grant			May 25, 2007 Grant
Dividend yield		1.89	%		2.23	%		2.24	%
Expected volatility		12.65	%		12.17	%		11.04	%
Risk-free rate		4.56	%		4.95	%		4.86	%
Expected life in years		6.5			6.5			6.5
Fair value	$	2.00		$	1.97		$	1.84

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NOTE 13 – Dividends

On March 17, 2009, the Board of Directors of the Company declared a cash dividend of $0.05 a share for stockholders of record as of April 2, 2009 and payable on April 16, 2009. Putnam Bancorp, MHC, the mutual holding company, waived the receipt of the dividend declared by the Company.

NOTE 14 – Commitments to Extend Credit

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet.

The contractual amounts of outstanding commitments were as follows:

	March 31, 2009		June 30, 2008
	(in thousands)
Commitments to extend credit:
Loan commitments	$	13,750	$	9,732
Unadvanced construction loans		4,024		6,522
Unadvanced lines of credit		18,565		18,522
Standby letters of credit		1,198		2,050
Outstanding commitments	$	37,537	$	36,826

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis discusses changes in the financial condition and results of operations at and for the three and nine months ended March 31, 2009 and 2008, and should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report. These financial statements should be read in conjunction with the 2008 Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-KSB filed with the SEC on September 23, 2008.

The year-end condensed balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiary include, but are not limited to, changes in: interest rates, general economic conditions, legislation and regulations, real estate values, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

18

Except as required by applicable law and regulation, the Company does not undertake – and specifically disclaims any obligation – to publicly release the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

19

Overview

The Company’s results of operation depend primarily on net interest and dividend income, which is the difference between the interest and dividend income earned on its interest-earning assets, such as loans and securities, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings. The Company also generates noninterest income, primarily from fees and service charges. Gains on sales of loans and securities and cash surrender value of life insurance policies are added sources of noninterest income. The Company’s noninterest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising, data processing, professional fees and other operating expenses.

During the quarter ended September 30, 2008, the U.S. Treasury announced a plan to place the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) under conservatorship under the authority of the Federal Housing Finance Agency. The actions of the U.S. Government adversely impacted the value of the preferred stock of Fannie Mae and Freddie Mac. The Bank owns $4.0 million of Freddie Mac auction pass-through certificates (APT) issued by trusts sponsored by Merrill Lynch. The results of this action, along with general concern in the market about the future value of Freddie Mac preferred stock, have caused the values for the APT certificates to decrease materially. The Company had recorded a non-cash other-than-temporary impairment (“OTTI”) charge of $3.7 million in the quarter ended September 30, 2008. On October 29, 2008, the U.S. Treasury clarified that ordinary loss treatment applies to these Freddie Mac APT certificates. As an ordinary loss, under generally accepted accounting principles banks may not record the effect of this tax change in their balance sheets and income statements for financial and regulatory purposes until the period in which the law was enacted, i.e., the fourth quarter of 2008. The carrying value of the Freddie Mac APT certificates is now $46,000 as of March 31, 2009. On September 15, 2008, Lehman Brothers Holdings Inc. (“LBHI”) filed a petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of the United States Bankruptcy Code. This action has adversely impacted the value of Lehman Brothers corporate debt. The Bank owned $2.0 million of this corporate debt. The Company had recorded an OTTI charge of $1.8 million in the quarter ended September 30, 2008. During the quarter ended December 31, 2008, the market value declined by an additional $30,000 and the Company recorded a non-cash OTTI charge of $30,000 during the quarter ended December 31, 2008. During the quarter ended March 31, 2009, the Company sold one of the two Lehman Brothers bonds it owned and recorded a $15,000 gain on sale. The remaining Lehman Brothers bond, which had a previous carrying value of $75,000, has been determined to be worthless and has been completely written-off during the current quarter. At this time it is unclear when and if the values of both these investments will recover in the future. Both of these investments were rated investment grade by Moody’s and Standard & Poor’s at the time of purchase.

The net interest margin increased from 2.61% for the quarter ended March 31, 2008 to 2.85% for the quarter ended March 31, 2009. This resulted in a $126,000 increase in net interest and dividend income over the periods. In addition, noninterest expense decreased $27,000 or 1.0% during the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. The provision for loan losses increased $157,000 during the quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008.

The net interest margin increased from 2.49% for the nine months ended March 31, 2008 to 2.82% for the nine months ended March 31, 2009. This resulted in a $943,000 increase in net interest and dividend income over the periods. In addition, noninterest expense decreased $377,000 or 4.6% during the nine months ended March 31, 2009 compared to the nine months ended March 31, 2008. The provision for loan losses increased $707,000 during the nine months ended March 31, 2009 as compared to the nine months ended March 31, 2008.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, goodwill and the impairment of securities.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income.

20

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal and external loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change.

The analysis has two components: specific and general allocations. Specific allocations are made for loans for which collection is questionable and the loan is downgraded. Additionally, the size of the allocation is measured by determining an expected collection or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. For the general allocations, we consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, historical loan charge offs, results of internal and external loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change. Actual loan losses may be significantly more than the allowances we have established which could have a material negative effect on our financial results.

Goodwill. The Company’s goodwill (the amount paid in excess of fair value of acquired net assets) is reviewed at least annually to ensure that there have been no events or circumstances resulting in an impairment of the recorded amount of excess purchase price. Adverse changes in the economic environment, operations of acquired business units, or other factors could result in a decline in projected fair values. If the estimated fair value is less than the carrying amount, a loss would be recognized to reduce the carrying amount to implied fair value.

Other-Than-Temporary Impairment of Securities. Management periodically reviews all investment securities with significant declines in fair value for potential other-than-temporary impairment pursuant to the guidance provided by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. In November 2006, the Financial Accounting Standards Board issued Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The FSP addressed the determination as to when an investment is considered impaired, whether the impairment is other-than-temporary, and the measurement of an impairment loss. It also included accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amended SFAS No. 115“Accounting for Certain Investments in Debt and Equity Securities, SFAS No. 124”, “Accounting for Certain Investments Held by Not-for-Profit Organizations”, and APB Opinion 18, “The Equity Method of Accounting for Investments in Common Stock”. Management evaluates the Company’s investment portfolio on an ongoing basis and determined that $6.0 million of investments were other-than-temporarily impaired as of September 30, 2008 and was written-down by $5.5 million as of the quarter ended September 30, 2008 and an additional write-down of $304,000 during the quarter ended December 31, 2008 and $75,000 during the quarter ended March 31, 2009, resulting in a charge to income of the same amounts. There were no other-than-temporarily impaired investments as of March 31, 2008.

Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Board of Directors.

21

Comparison of Financial Condition at March 31, 2009 and June 30, 2008

Assets

Total assets decreased to $477.1 million at March 31, 2009 from $494.5 million at June 30, 2008. Investments in securities decreased $43.3 million during the nine months ended March 31, 2009, and represented $176.7 million or 37.0% of total assets at March 31, 2009. Net loans have continued to grow to $259.3 million at March 31, 2009 from $242.7 million at June 30, 2008 and now represent 54.4% of total assets. Cash flows from the investment portfolio have been used to fund this loan growth.

Allowance for Loan Losses

The table below indicates the relationships between the allowance for loan losses, total loans outstanding and nonperforming loans at March 31, 2009 and June 30, 2008.

	March 31, 2009			June 30, 2008
	(Dollars in thousands)
Allowance for loan losses	$	2,020			$	1,758
Gross loans outstanding		260,958				244,166
Nonperforming loans		4,552				4,036
Allowance/gross loans outstanding		0.77	%			0.72	%
Allowance/nonperforming loans		44.4	%			43.6	%

Past Due and Nonperforming Loans

The following table sets forth information regarding past due and non-performing loans:

	March 31, 2009		June 30, 2008
	(in thousands)
Past due 30 days through 89 days and accruing	$	6,399	$	4,230
Past due 90 days or more and accruing	$	496	$	3,054
Past due 90 days or more and nonaccruing	$	4,056	$	982

Liabilities

Total liabilities decreased to $441.3 million at March 31, 2009 from $445.1 million at June 30, 2008. Total deposits increased to $301.5 million at March 31, 2009 from $283.7 million at June 30, 2008, an increase of $17.8 million or 6.3%. Borrowed funds decreased to $133.9 million at March 31, 2009 from $156.6 million at June 30, 2008, a decrease of $22.7 million or 14.5%.

Stockholders’ Equity

Stockholders’ equity decreased to $35.8 million at March 31, 2009 from $49.4 million at June 30, 2008, primarily due to the net loss of $1.3 million and an increase in other comprehensive loss of $11.3 million.

22

Comparison of Operating Results for the Three and Nine Months Ended March 31, 2009 and 2008

Net Income (Loss)

Net income amounted to $712,000 for the quarter ended March 31, 2009 compared to net income of $921,000 for the quarter ended March 31, 2008. This was primarily attributable to an increase in provision for loan losses of $157,000 and a reduction in noninterest income of $176,000. Included in this reduction in noninterest income were lower gain on sales of securities of $104,000 and an additional impairment charge on Lehman Brothers investments of $75,000 for the quarter ended March 31, 2009. The Company has now sold or written-off its entire investment in Lehman Brothers. This was partially offset by an increase in net interest and dividend income of $126,000 and a decrease in noninterest expense of $27,000.

The net loss amounted to $1.3 million for the nine months ended March 31, 2009 compared to net income of $2.1 million for the nine months ended March 31, 2008. The decrease in net income reflected an OTTI charge on investments of $5.9 million for the nine months ended March 31, 2009. The provision for loan losses increased by $707,000. This was partially offset by an increase in net interest and dividend income of $943,000 and a decrease in noninterest expense of $377,000 and a decrease in income tax expense of $1.7 million.

Interest and Dividend Income

Interest and dividend income amounted to $6.2 million for the quarter ended March 31, 2009 as compared to $6.8 million for the quarter ended March 31, 2008, a decrease of $580,000 or 8.6%. The decrease in yield on loans had the greatest impact on interest income when comparing the quarters. The yield on loans decreased 59 basis points. This was partially offset by an increase in average loan balances of $13.6 million when comparing the quarters ended March 31, 2009 and 2008. Average investment securities decreased $35.6 million and the yield increased 20 basis points. Average other earning assets decreased $456,000 and the yield decreased by 284 basis points when comparing the quarters ended March 31, 2009 and 2008. The decrease in yield is due to reductions in short-term rates implemented by the Federal Open Market Committee since March 31, 2008.

Interest and dividend income amounted to $19.2 million for the nine months ended March 31, 2009 as compared to $20.4 million for the nine months ended March 31, 2008, a decrease of $1.2 million or 5.9%. The decrease in yield on loans had the greatest impact on interest income when comparing these time periods. The yield on loans decreased 53 basis points. This was partially offset by an increase in average loan balances of $11.8 million when comparing the nine months ended March 31, 2009 and 2008. Average investment securities decreased $20.9 million and the yield increased 10 basis points. Included in the change in investment security yields for the nine months ended March 31, 2009 was the accrued interest and dividend income reversed on the Freddie Mac Auction Rate Preferred and Lehman Brothers investments that were written down. Average other earning assets decreased $483,000 and the yield decreased by 335 basis points when comparing the nine months ended March 31, 2009 and 2008. The decrease in yield is due to reductions in short-term rates implemented by the Federal Open Market Committee since March 31, 2008.

Interest Expense

Interest expense amounted to $3.1 million for the quarter ended March 31, 2009 as compared to $3.8 million for the quarter ended March 31, 2008, a decrease of $706,000 or 18.6%. The decrease in rates on interest-bearing liabilities had the greatest impact on interest expense. The average rates paid on interest-bearing liabilities decreased by 76 basis points during the periods. The average balance of interest-bearing deposits grew by $13.1 million, and the average rate paid decreased by 85 basis points when comparing the quarters ended March 31, 2009 and 2008. The average balance of borrowed money decreased by $9.0 million, and the average rate paid decreased by 49 basis points when comparing the quarters ended March 31, 2009 and 2008. Average brokered deposits decreased $1.8 million for the quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008. We replaced brokered deposits with FHLBB advances, which were significantly lower in cost than the brokered deposits.

Interest expense amounted to $9.7 million for the nine months ended March 31, 2009 as compared to $11.8 million for the nine months ended March 31, 2008, a decrease of $2.1 million or 18.3%. The decrease in rates on interest-bearing liabilities had the greatest impact on interest expense. The average rates paid on interest-bearing liabilities decreased by 78 basis points during the periods. The average balance of interest-bearing deposits grew by $5.6 million, and the average rate paid decreased by 76 basis points when comparing the nine months ended March 31, 2009 and 2008. The average balance of borrowed money increased by $1.7 million, and the average rate paid decreased by 82 basis points when comparing the nine months ended March 31, 2009 and 2008. Average brokered deposits decreased $4.9 million for the nine months ended March 31, 2009 as compared to the nine months ended March 31, 2008. We replaced brokered deposits with Federal Home Loan Bank of Boston (FHLBB) advances, which were significantly lower in cost than the brokered deposits.

23

Net Interest and Dividend Income

Net interest and dividend income amounted to $3.1 million for the quarter ended March 31, 2009 as compared to $3.0 million for the quarter ended March 31, 2008, an increase of $126,000 or 4.2%. Net interest spread increased 51 basis points to 2.56% as compared to 2.05% and net interest margin increased 24 basis points to 2.85% as compared to 2.61% when comparing the quarters ended March 31, 2009 and 2008.

Net interest and dividend income amounted to $9.6 million for the nine months ended March 31, 2009 as compared to $8.6 million for the nine months ended March 31, 2008, an increase of $943,000 or 10.9%. Net interest spread increased 55 basis points to 2.46% as compared to 1.91% and net interest margin increased 33 basis points to 2.82% as compared to 2.49% when comparing the nine months ended March 31, 2009 and 2008.

Due to the large portion of fixed rate loans and securities in the Company’s asset portfolio, interest rate risk is a concern and the Company continues to monitor and adjust the asset and liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of a rising rate environment. Management attempts to mitigate the interest rate risk through balance sheet composition. One strategy has been to extend out FHLBB advance maturities and take advantage of relatively low cost funding.

Provision for Loan Losses

The provision for loan losses amounted to $157,000 for the quarter ended March 31, 2009 with no provision for loan losses for the quarter ended March 31, 2008. The allowance for loan losses is based on management’s estimate of the probable losses inherent in the portfolio, considering the impact of certain factors. Among the factors management may consider are prior loss experience, current economic conditions and their effects on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management’s review of the portfolio in light of those conditions. The ratio of the allowance to gross loans outstanding was .77% as of March 31, 2009 compared to 0.72% as of June 30, 2008. Net charge-offs were $25,000 for the quarter ended March 31, 2009.

The provision for loan losses amounted to $754,000 for the nine months ended March 31, 2009 and $47,000 for the nine months ended March 31, 2008. This increase in the level of provision was primarily the result of a single commercial loan charge-off of $400,000 and an increased allocation against the remainder of the portfolio. The ratio of the allowance to gross loans outstanding was 0.77% as of March 31, 2009 compared to 0.72% as of June 30, 2008. Net charge-offs were $492,000 for the nine months ended March 31, 2009.

Noninterest Income (Charge)

Noninterest income amounted to $727,000 for the quarter ended March 31, 2009 as compared to noninterest income of $903,000 for the quarter ended March 31, 2008, a decrease of $176,000 or 19.5%. This decrease was primarily due to OTTI investment write-downs of $75,000 in Lehman Brothers corporate debt and a decrease in net gain on sale of securities of $104,000.

Noninterest charge amounted to $3.3 million for the nine months ended March 31, 2009 as compared to noninterest income of $2.4 million for the nine months ended March 31, 2008, a decrease of $5.8 million or 238.0%. This decrease was primarily due to OTTI investment write-downs of $5.9 million. The write-downs included $3.95 million in Freddie Mac pass-through auction-rate securities issued by trusts consisting solely of Freddie Mac preferred stock and $1.9 million in Lehman Brothers corporate debt. The current carrying values as of March 31, 2009 of the Freddie Mac auction-rate securities and Lehman Brothers corporate debt was $46,000 and $0, respectively. This decrease in the nine months ended March 31, 2009 was partially offset by increased BOLI income of $164,000.

24

Noninterest Expense

Noninterest expense amounted to $2.64 million for the quarter ended March 31, 2009 as compared to $2.66 million for the quarter ended March 31, 2008, a decrease of $27,000 or 1.0%. Compensation and benefits expense decreased $42,000 or 2.8%. Occupancy and equipment expense increased $5,000 or 1.6%. Data processing, advertising & marketing and other noninterest expense increased $10,000 or 1.2%.

Noninterest expense amounted to $7.8 million for the nine months ended March 31, 2009 as compared to $8.2 million for the nine months ended March 31, 2008, a decrease of $377,000 or 4.6%. Compensation and benefits expense decreased $80,000 or 1.8%. This decrease was primarily due to a reduction in employee stock award expense due to forfeitures. Occupancy and equipment expense decreased $33,000 or 3.7% due primarily to lower depreciation expense and service contracts. Data processing, advertising & marketing and other noninterest expense decreased $264,000 or 9.4% primarily due to decreases in data processing, Director stock awards, postage expense and software depreciation expense. This was partially offset by increases in FDIC assessments and miscellaneous expenses.

Provision for Income Taxes

The income tax expense amounted to $326,000 for the quarter ended March 31, 2009 as compared to $297,000 in income tax expense for the quarter ended March 31, 2008.

The income tax benefit amounted to $998,000 for the nine months ended March 31, 2009 as compared to $669,000 in income tax expense for the nine months ended March 31, 2008. This benefit was due to the $5.9 million of OTTI write-down’s, discussed above.

25

Average Balance Sheet

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. Yields and costs are annualized.

	For the Three Months Ended March 31,
	2009							2008
	(Dollars in thousands)
Interest-earning assets:	Average Balance		Interest/ Dividends		Yield/ Cost			Average Balance		Interest/ Dividends		Yield/ Cost
Investment securities	$	183,022	$	2,602		5.77	%	$	218,624	$	3,001		5.57	%
Loans		254,668		3,588		5.71	%		241,064		3,743		6.30	%
Other earning assets		4,180		1		0.10	%		3,724		27		2.94	%
Total interest-earnings assets		441,870		6,191		5.68	%		463,412		6,771		5.93	%
Non-interest-earning assets		35,780							26,228
Total assets	$	477,650						$	489,640
Interest-bearing liabilities:
NOW accounts	$	42,607		222		2.11	%	$	30,542		208		2.76	%
Savings accounts		45,249		57		0.51	%		46,291		78		0.68	%
Money market accounts		12,443		50		1.63	%		15,369		78		2.06	%
Time deposits		159,656		1,374		3.49	%		154,698		1,775		4.65	%
Borrowed money		140,589		1,383		3.99	%		149,541		1,653		4.48	%
Total interest-bearing liabilities		400,544		3,086		3.12	%		396,441		3,792		3.88	%
Non-interest-bearing demand deposits		35,412							37,285
Other non-interest-bearing liabilities		5,398							3,796
Capital accounts		36,296							52,118
Total liabilities and capital accounts	$	477,650						$	489,640
Net interest income			$	3,105						$	2,979
Interest rate spread						2.56	%						2.05	%
Net interest-earning assets	$	41,326						$	66,971
Net interest margin						2.85	%						2.61	%
Average earning assets to average interest-bearing liabilities						110.32	%						116.89	%

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	For the Nine Months Ended March 31,
	2009							2008
	(Dollars in thousands)
Interest-earning assets:	Average Balance		Interest/ Dividends		Yield/ Cost			Average Balance		Interest/ Dividends		Yield/ Cost
Investment securities	$	198,270	$	8,185		5.50	%	$	219,194	$	8,890		5.40	%
Loans		251,180		11,039		5.85	%		239,383		11,460		6.38	%
Other earning assets		2,922		14		0.64	%		3,405		102		3.99	%
Total interest-earnings assets		452,372		19,238		5.67	%		461,982		20,452		5.90	%
Non-interest-earning assets		31,960							28,099
Total assets	$	484,332						$	490,081
Interest-bearing liabilities:
NOW accounts	$	39,397		670		2.27	%	$	28,248		572		2.70	%
Savings accounts		45,236		194		0.57	%		47,641		259		0.72	%
Money market accounts		12,262		153		1.66	%		16,065		238		1.97	%
Time deposits		154,763		4,192		3.61	%		154,063		5,428		4.69	%
Borrowed money		150,821		4,446		3.93	%		149,132		5,315		4.75	%
Total interest-bearing liabilities		402,479		9,655		3.20	%		395,149		11,812		3.98	%
Non-interest-bearing demand deposits		36,189							39,068
Other non-interest-bearing liabilities		4,574							3,741
Capital accounts		41,090							52,123
Total liabilities and capital accounts	$	484,332						$	490,081
Net interest income			$	9,583						$	8,640
Interest rate spread						2.47	%						1.92	%
Net interest-earning assets	$	49,893						$	66,833
Net interest margin						2.82	%						2.49	%
Average earning assets to average interest-bearing liabilities						112.40	%						116.91	%

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          The following tables set forth the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	For the Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
	Increase(Decrease) Due to
INTEREST INCOME	Rate			Volume			Net
Investment securities	$	641		$	(1,040	)	$	(399	)
Loans		(1,161	)		1,006			(155	)
Other interest-earning assets		(47	)		21			(26	)
TOTAL INTEREST INCOME		(567	)		(13	)		(580	)
INTEREST EXPENSE:
NOW accounts		(243	)		257			14
Savings accounts		(19	)		(2	)		(21	)
Money Market accounts		(15	)		(13	)		(28	)
Time deposits		(764	)		363			(401	)
Other borrowed money		(175	)		(95	)		(270	)
TOTAL INTEREST INCOME		(1,216	)		510			(706	)
CHANGE IN NET INTEREST INCOME	$	649		$	(523	)	$	126

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	For the Nine Months Ended March 31, 2009Compared to the Nine Months Ended March 31, 2008
	Increase(Decrease) Due to
INTEREST INCOME	Rate			Volume			Net
Investment securities	$	245		$	(950	)	$	(705	)
Loans		(1,203	)		782			(421	)
Other interest-earning assets		(75	)		(13	)		(88	)
TOTAL INTEREST INCOME		(1,033	)		(181	)		(1,214	)
INTEREST EXPENSE:
NOW accounts		(145	)		243			98
Savings accounts		(52	)		(13	)		(65	)
Money Market accounts		(34	)		(51	)		(85	)
Time deposits		(1,277	)		41			(1,236	)
Other borrowed money		(966	)		97			(869	)
TOTAL INTEREST INCOME		(2,474	)		317			(2,157	)
CHANGE IN NET INTEREST INCOME	$	1,441		$	(498	)	$	943

Market Risk, Liquidity and Capital Resources

Market Risk

          The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk (“IRR”). Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits and other borrowings. As a result, a principal part of our business strategy is to manage IRR and reduce the exposure of our net interest income (“NII”) to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Management Committee which is responsible for evaluating the IRR inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. With the assistance of an IRR management consultant, the committee monitors the level of IRR on a regular basis and generally meets at least on a quarterly basis to review our asset/liability policies and IRR position.

          We have sought to manage our IRR in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset/liability management, we currently use the following strategies to manage our IRR: (i) using alternative funding sources, such as advances from the Federal Home Loan Bank of Boston, to “match fund” certain investments and/or loans; (ii) continued emphasis on increasing core deposits; (iii) offering adjustable rate and shorter-term home equity loans, commercial real estate loans, construction loans and commercial and industrial loans; (iv) offering a variety of consumer loans, which typically have shorter-terms; (v) investing in mortgage-backed securities with variable rates or fixed rates with shorter durations. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans and securities with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our NII to changes in market interest rates.

29

          Net interest income at-risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. The table below represents an analysis of our IRR as measured by the estimated changes in NII, resulting from an instantaneous and sustained parallel shift in the yield curve (+100 and +200 basis points) at June 30, 2008 and December 31, 2008.

Net Interest Income At-Risk
Change in Interest Rates (Basis Points)	Estimated Increase (Decrease) in NII December 31, 2008	Estimated Increase (Decrease) in NII June 30, 2008
Stable
+ 100	-2.20%	-2.75%
+ 200	-6.73%	-7.48%

          The preceding income simulation analysis does not represent a forecast of NII and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary prepayment/refinancing levels will likely deviate from those assumed, the varying impact of interest rate changes on caps and floors embedded in adjustable rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables. We do not believe that there has been a material change in our NII position between December 31, 2008 and March 31, 2009.

          Net Portfolio Value Simulation Analysis. The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis point increments. However, given the current low level of market interest rates, we did not prepare a net portfolio value calculation for an interest rate decrease of greater than 100 basis points. A basis point equals one-hundredth of one percent, and 200 basis points equals two percent, an increase in interest rates from 3% to 5% would mean, for example, a 200 basis point increase in the “Change in Interest Rates” column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.

          The tables below set forth, at December 31, 2008, indicated the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. This data is for Putnam Bank only and does not include any yield curve changes in the assets of PSB Holdings, Inc. We do not believe that there has been a material change in our NPV position between December 31, 2008 and March 31, 2009.

30

									NPV as a Percentage of Present
			Estimated Increase (Decrease) in						Value of Assets (3)
Change in			NPV									Increase
Interest Rates	Estimated											(Decrease)
(basis points) (1)	NPV (2)		Amount			Percent			NPV Ratio (4)			(basis points)
+300	$	19,978	$	(13,356	)		-40	%		4.28	%		-248
+200	$	26,776	$	(6,558	)		-20	%		5.60	%		-115
+100	$	30,831	$	(2,504	)		-8	%		6.34	%		-41
0	$	33,334	$	—			0	%		6.75	%		0
-100	$	32,457	$	(877	)		-3	%		6.52	%		-23

(1)	Assumes an instantaneous uniform change in interest rates at all maturities.
(2)	NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)	NPV ratio represents NPV divided by the present value of assets.

Liquidity

The term liquidity refers to the ability of the Company and the Bank to meet current and future short-term financial obligations. The Company and the Bank further define liquidity as the ability to generate adequate amounts of cash to fund loan originations, deposit withdrawals and operating expenses. Liquidity management is both a daily and long-term function of business management. The Bank’s primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-related securities, and Federal Home Loan Bank of Boston borrowings. The Bank can borrow funds from the Federal Home Loan Bank of Boston based on eligible collateral of loans and securities. The Bank had Federal Home Loan Bank of Boston borrowings as of March 31, 2009 of $130.5 million with unused borrowing capacity of $70.8 million. The Bank had no brokered certificates of deposits as of March 31, 2009. The Bank has an internal limit of wholesale borrowings to total assets ratio of 40.0%. As of March 31, 2009, the ratio of wholesale borrowings to total assets was 27.4%.

The Bank’s primary investing activities are the origination of loans and the purchase of investment securities. During the nine months ended March 31, 2009 and 2008, the Bank originated loans for the portfolio net of principal payments of $18.6 million and $8.8 million, respectively. Purchases of securities totaled $7.1 million and $55.2 million, for the nine months ended March 31, 2009 and 2008, respectively.

Loan repayment and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. Deposit flows are affected by the level of interest rates, by the interest rates and products offered by competitors and by other factors. The Bank monitors its liquidity position frequently and anticipates that it will have sufficient funds to meet its current funding commitments.

Certificates of deposits totaled $160.6 million at March 31, 2009. The Bank relies on competitive rates, customer service and long-standing relationships with customers to retain deposits. Based on the Bank’s experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Bank.

The Bank was well capitalized at March 31, 2009 and exceeded each of the applicable regulatory capital requirements at such date.

31

	Required	Actual
Ratio of Tier 1 Capital to total assets	4%	8.14%
Ratio of Total Risk Based Capital to risk-weighted assets	8%	11.86%
Ratio of Tier 1 Risk Based Capital to risk-weighted assets	4%	11.29%

Management is not aware of any known trends, events or uncertainties that will have or are reasonably likely to have a material effect on the Company’s or the Bank’s liquidity, capital or operations, nor is management aware of any current recommendations by regulatory authorities which, if implemented, would have a material effect on the Company’s or the Bank’s liquidity, capital or operations.

Off-Balance Sheet Arrangements

In addition to the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit, and letters of credit.

For the quarter ended March 31, 2009, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies

Item 4. Controls and Procedures

Not applicable

Item 4T. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.

There has been no change in the Company’s internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

32

Part II. – OTHER INFORMATION
Item 1.	Legal Proceedings – Not applicable
Item 1A.	Risk Factors
There have been no material changes to the risk factors described in the Company’s previous filings with the Securities and Exchange Commission.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	a) Not applicable
	b) Not applicable
	c) Not applicable
Item 3.	Defaults Upon Senior Securities – Not applicable
Item 4.	Submission of Matters to a Vote of Security Holders

The Company convened its 2008 Annual Meeting of Stockholders on November 7, 2008. At the meeting, the stockholders of the Company considered and voted on the following proposals:

Proposal No. 1. The election of Mary E. Patenaude, Robert J. Halloran, Jr., and Jitendra K. Sinha, each to serve as a director for a term of three years and until his or her successor has been elected and qualified.

	For		Withheld
Mary E. Patenaude		5,782,723		23,281
Robert J. Halloran, Jr.		5,722,090		83,914
Jitendra K. Sinha		5,782,723		23,281

The term in office of directors Thomas A. Borner, Richard A. Loomis, Paul M. Kelly, Charles H. Puffer, Charles W. Bentley, Jr. and John P. Miller continued after the 2008 Annual Meeting.

Proposal No. 2. The ratification of the appointment of Shatswell, MacLeod & Company, P.C. as the independent registered public accounting firm of the Company for the fiscal year ending June 30, 2009.

	For			Against			Abstain
Number of votes		5,773,249			16,586			16,169
Percentage of shares voting in person or by proxy		99.7	%		0.3	%

Item 5. Other Information

a.	Not applicable.
b.	There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.

Item 6. Exhibits

Exhibits
31.1	Chief Executive Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350.
32.2	Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350.

33

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PSB HOLDINGS, INC.
		(Registrant)
Date	May 15, 2009	/s/ Thomas A. Borner
		Thomas A. Borner
		Chief Executive Officer
Date	May 15, 2009	/s/ Robert J. Halloran, Jr.
		Robert J. Halloran, Jr.
		President, Chief Financial Officer and Treasurer

34